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This May Just Be The Start Of The Oil Price War Says IEA
Submitted by Andy Tully via OilPrice.com,
Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world’s most influential oil-producing country, he has enormous influence.
But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC’s strategy of forcing US shale to cut back is succeeding.
The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia’s effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called “light, tight oil” (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point.
“In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked,” the IEA reported. “Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating.”
But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers.
As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again.
But that, evidently, isn’t good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. “Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks,” the report said.
For example, Statoil, Norway’s huge state-owned energy company, is trying out new techniques of hydraulic fracturing, or fracking, in Texas’ Eagle Ford shale field. They include using different grades of sand to mix with water and chemicals, and drilling at varying depths, to increase oil yields.
“There’s a proverb in Norway that says necessity teaches the naked woman how to knit,” Bjorn Otto Sverdrup, a Statoil vice president, told The New York Times, during a tour of the company's shale operations in Kennedy, Texas.
Evidently this mother of invention is showing some success. Statoil may have cut the number of its rigs at Eagle Ford from three to two in 2014, but its production from the shale field is up by one-third. The new fracking method has also cut the cost of extraction from an average of $4.5 million per well to $3.5 million, in part because it’s been able to reduce drilling time from an average of 21 days to 17.
Against this backdrop, then, it’s not surprising that the IEA isn’t so sure that OPEC in general, and al-Naimi in particular, have the upper hand – yet. “It would thus be premature to suggest that OPEC has won the battle for market share,” the agency’s report said. “The battle, rather, has just started.”
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Follow the joobux derivative trade hyperextensions if you wish to receive true enlightenment on this matter (or ANY OTHER, for that matter)...
<-- Follow the 'comment' body of work, on ZH, of CH1, to receive true enlightenment as to why this comment was junked
Let's not kid ourselves the drop in oil prices in not becasue of some price war, that is a reaction to over production. This is how you follow the rabbit hole to the root cause.
Well eighter it could be saudis puppeteering to punish the russian economy or its overproduction.
What it for sure NOT is, is a war against the US shale industry.
Aren't Hillary, 0bama, Pelosi, Gore, and all the other liberals at war against the US shale industry?
The point is that production from shale wells peaks and declines very quickly so it requires constant new investment (Rigs) to keep production up. It was inevitable the production from existing new wells would continue to grow and was never predicted by any knoweldgable party to decline until 3Q15 (Especially as the marginal producers pump flat out to generate cash flow to repay junk loans and stay afloat), after which time, production will fall away quickly. So I call BS on this article.
The analysis is quite good but it still misses one thing. Most of that investment in shale production was uneconomic. While some of the shale players have reported profits in their 10-Ks their accountants are using depreciation rates that do not reflect the actual ultimate return from each well. It is quite common to have them write off a quarter of the cost of the well even though more than half of the total oil has already been extracted. And while the cost reductions are impressive the new shale wells are being drilled in marginal areas that cannot produce as much as the old wells that were drilled in the very productive core areas. The simple fact is that the shale producers were reporting funding gaps even when prices were above $80. Most of them will have to start writing off their assets some time in the next few quarters even if prices rebound. Shale is a Ponzi scheme and has always been a Ponzi scheme.
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.jobs-review.com
Just as long as Sandridge Energy's (SD) stock price drops like a rock I'll be happy.
That is great news, and what is the fresh water to oil ratio now, better than 1:50?
norway is drilling in texas, awesome
The MPGs on autos keep improving yearly.
They kind of don't really Yogi...
The Carnot heat engine cycle cannot get much above 35% efficiency, and that includes electric cars powered from the mains, but Solar might have a little further to go, maybe beyond 11% in our lifetime.
For me heat pumps could be good, especially solid-state electronic ones, pulling 400% of heat input. Quite difficult though, but possible.
We will need to wait for heat pump cars before we get decent 'gas mileage'.
We have a microturbine engine that will not only dramatically improve gas mileage (think of it as baseload range with all electric drive and batteries for peak)... 45% efficient with headroom north of 55%... There's LOTS that can be done, if we would simply INVEST in solutions rather than value destroying financial engineering...
If your turbine runs using something other than Carnot, good luck, because if Carnot it won't be giving more than about 35%.
They do really. I have two cars same model. The newer one uses 5mpg less than the older model
In development for 14 years, the four-seated car measures roughly 5.25 metres in length and sports what its creators say is an entirely new kind of energy storage system, also called Nanoflowcell. The company claims that the automobile is capable of speeds of 350 kilometres per hour and acceleration of 0-100 kilometres per hour in just 2.8 seconds, and can travel distances of 600 kilometres with a full tank of a petrol made from a salt water solution.
Now this has to scare theshitouta big oil, as gasoline is the numero uno use for it.
Basically an electric car with a better battery storage system.
Carnot cycle engine will improve incrementally. Petrol engine gives plus 25% and Diesel plus 29%, Canot theoretical limit is about 35% maybe a tad more, so things will improve, but not much beyond that for this type of heat engine cycle. Basically, it's thermodynamically impossible for this type of system.
Google :
Salt water-powered electric carapproved for roads in Europe
Nice idea, hope it catches on, but this is not a Carnot heat engine cycle, this is a chemical reaction creating electricity, not a cycle I can see.
Sounds nice for pure salt-water, but not sea water, the cells will clog on the first outing :-) too much pollution and ocean trash, organisms millions per cc of seawater etc.
Anyway, hope it can work. Like the car design :-)
Higher production + Lower drilling costs = Oil @ $20 bbl
Yep. As more rigs sit idle the day rates will continue to decrease. The same with labor and lease rates. Projects that were once unprofitable with oil at 30 will become profitable.
The recent rise in price of WTI, from $41 to $63, was NOT brought about by any reduction of supply. So far, the shale oil producers of the Bakken and the Permian have reduced completions of new wells and cut back on drilling, but their current production remains at an all time high.
The recent rise in price of WTI was brought about by investors and (dare we say) speculators who have been purchasing physical oil as if it was gold and hoarding it to sell at some future date.
They stopped doing this about two weeks ago. Why? You will have to ask them. Did it get too expensive for them? Did the contango in the futures market go too flat? Or did they just run out of room while the rent on tank space got to be too high?
For whatever reason, worldwide supply is still outstripping demand by about 2 million barrels a day. Unless someone figures out how to make coca cola out of it. very soon, there's likely to be another wicked price drop this summer....
The contango is flattening
June WTI is 60
Dec
2015 is 63
2016 is 64
2017 is 65
Theres no more money to be made storing oil unless spot drops to 50 again
The cost of fracking sand went through the roof. Mainly because speculators started buying up mass quantities of sand in anticipation of selling it for higher prices as more wells were drilled.
Earlier the cost of securing land for fracking went through the roof as corproations and speculators started buying up land before someone else could.
Any time you allow people who have no business being in your business, you end up with mass distortions in prices. The tulip bulb effect.
We actually have beanie baby mania everywhere. When a grown man buys hundreds of beanie babies, even though he doesn't have a kid and has no use for them, you have mass market distortion.
So what do we do, ban people who have no use for a product from buying it? It would be pretty hard to enforce. Besides, it really runs against the ideals of freedom to prevent someone from doing something. The issue is that in every case, including the current equity mania in China, is people chasing others in the anticipation of being able to sell the item for more than they paid to someone else.
The enabler of bubbles is credit. Most of the Beanie Baby speculators didn't actually have the money to buy all of the toys they bought. They would max out credit cards believing they could sell all the Beanie Babies over the next month for massive profit before the bill was due and easily pay off the debt they incurred even though they didn't really have the money to pay the debt when they incurred it. The Beanie Baby bubble ended when speculators were buying more supply than real consumers of the product. This lead to speculators dumping product to meet debt payments popping the bubble. When overall sales slowed, all of a sudden credit payments needed to be made. That interest started to pile up. When one person dropped prices, others followed fearing they wouldn't be able to sell their own inventory at a level high enough to meet thier debt obligations.
I think we saw this last year in the oil market. It is fact that higher than 95% of oil contract volume is traded by speculators. That is a disturbingly high percentage of people that have no real use for a barrel of oil. Once again credit enabled this. As much as people want to believe the EIA, their data is as flawed as the BLS. End demand simply was not keeping up with what the speculators expected leading to dump to cover credit obligations. Some players got hammered, but others saw it as a point to lever up and do it all over again. There was no end use demand based reason for oil prices to jump the way they did at the end of January.
So again, what do we do? In the case of oil, forcing delivery would go a long way to curb speculation. For most of the years futures contracts were traded prices tended to go down at the end of the month. If a company didn't have the room to store what they were going to receive, they had to dump the contract. Recently contracts have tended to go up in price at the end of the month, thanks to speculators ability to roll contracts over. An odd difference from before. If a speculator doesn't have to worry about taking delivery, he might try to frontrun others by buying a contract earlier than others if he believes the price is going up.
My solution to fix everything is to destroy all forms of credit. Good luck with that though. The fortunes of the Tribe would disappear almost overnight along with their power base.
Oil is abiotic it's never going to run out
/s for the hearing impaired
Ghawar is empty so now what?
Whales are endangered species, so we can no longer use whale oil so now what?
Necessity is the mother of invention. A shortage of oil or long periods of high oil prices will be the death knell of the oil industry. The Saudis understand that. Nobody cared about electric or hybrid cars when gas was 95 cents a gallon.
Why is it incumbent upon the Saudis to babysit the flawed business model of shale oil producers? The banksters aren't going to lose anything on the deal either way. Your pension and hedge funds will make up the shortfall for the shale industry.
there was a lot of price insurance issued by the banks to the independents when oil was $100 plus - the banks moved the price up artificially in order to offset / get out of the hedge
the price is moving back down
whoa input costs come down, who coulda thunk it.
10 years ago the oil price was the same as it is now and companies were fracking and not going broke. Strange that.
With the new king in Saudi - and his shuffling of the various princes and ministers - saudi arabia is now trying to demonstrate there is a new sheriff in town.